Belonging to the European Union (EU) as well as the group of three countries known as the Baltic States, Latvia has been consistently climbing the ranks over the last few years for multinational companies (MNCs) looking to expand business and build workforces globally. Notably, despite the global economic woes triggered by the COVID-19 pandemic, the flow of foreign direct investment (FDI) into Latvia has doubled, according to data from the Bank of Latvia. The main attractions for this FDI have been the country’s financial and insurance sector, manufacturing industry and information technology/communications services.
- Strategically located in Northern Europe, Latvia has bolstered its transportation infrastructure, logistics capabilities and information technology sector to establish itself as a premier bustling commercial trading hub for MNCs.
- Latvia has consistently ranked among the top ten economies in the EU for ease of doing business, according to data from the World Bank.
- Latvia offers a highly-educated, multilingual workforce, powered by a corporate culture promoting hard work, reliability and success. Overall, labor costs in Latvia are the fourth lowest in the EU.
- Armed with funds from the Recovery and Resilience Facility of the EU, one of the Ministry of the Economy of Latvia’s recent priorities is supporting the development of new digital products and services.
- Around 38% of people employed in the Latvian economy could potentially work remotely, with Latvia’s National Productivity Board anticipating large-scale growth in permanent remote workers and their productivity in upcoming years.
What do multinational companies (MNS) need to keep in mind when looking at Latvia for hiring?
MNCs looking to hire employees in Latvia must take into account a multitude of labor laws and several amendments which are subject to change frequently. Notably, the government has established a national consultation mechanism between social partners, called the National Tripartite Co-operation Council (NTCC), to promote cooperation between the government, employers’ organizations and employees’ organizations at the national level. The objective is to solve social and economic development problems collaboratively.
An employment contract must be in writing and signed before the commencement of work. However, once employment has started, a verbal agreement maintains the same legal effect as a written employment contract. To protect business interest, it is highly recommended that employers draft a written employment contract. The document must be furnished in Latvian, or a Latvian language translation must be provided. Moreover, the agreement can be temporary or signed for an indefinite amount of time.
A probation period, or a trial period, can be applied for a maximum of three months, which can be agreed upon between the parties. During the probation period, either the employer or employee can terminate the employment relationship by giving three days’ notice. The cause does not have to be indicated.
The maximum working hours are eight hours a day or 40 hours a week. Workers are entitled to at least 12 hours of rest between shifts and a rest break of 30 minutes when they have worked for six hours. For shift or night workers, for work done between 10 p.m. – 6 a.m., the work cannot exceed seven hours a night. Employers are legally obligated to store various documents pertaining to an employee’s work history, including employment contracts, pay slips, timesheets and documents which serve as proof of payment of wages for two years from the date of posting.
The employee and employer each have the right to terminate the employment agreement. The party initiating the termination must offer the other party one month’s notice in writing. Employers can advance a termination for a variety of reasons, including restructuring, liquidation, return of previous employee or employee incompetence. The one-month notice is not necessary if the employee violates terms of the contract or participates in illegal acts or actions that the threaten workplace safety. The necessity for severance payments depends on the length of employment.
National social insurance contributions (NSIC) are paid monthly, by both the employee and the employer, to the State Social Insurance Agency (VSAA). These contributions guarantee employees’ health insurance, pensions and unemployment insurance, as well as maternity, paternity and parental leave. After six months of continuous work, employees must be granted four weeks (20 working days excluding public holidays) or one month for young persons under 18 years of age. Employers must also pay their employees for up to ten days of sick leave.
While a 13th-month salary payment is not mandatory, it is not uncommon for employers to include this payment once a year. In addition to statutory entitlements, employees often enjoy contractual customary benefits such as extended annual paid leave, performance-based bonuses, company mobile, insurance (health and life) and paid parking.
Why is demand for Employer of Record (EOR) services on the rise in Latvia?
Foreign investments have been vital for the growth of the economy of Latvia since it restored its full independence in 1991. Namely, its highly skilled workforce and geographic position are among the attributes that have lured in foreign investors. Furthermore, the government has prioritized the information technology and professional services sectors, making a highly developed workforce available to MNCs. More recently, the government is investing and implementing incentives to promote FDI in digital innovations, manufacturing and research and development.
There are also factors that add to Latvia’s potential as a hub for global companies looking to seamlessly tap into remote talent, including some of the world’s fastest internet speeds, high rankings in e-government among EU countries and the advancement of its 5G network.
What makes GoGlobal the ideal EOR partner for MNCs in Latvia?
While Latvia offers favorable economic conditions and a sophisticated, productive workforce, MNCs often find it difficult to navigate the country’s constantly evolving regulatory environment. Furthermore, very often, there is a perception of bureaucratic red tape that makes it difficult for MNCs to succeed in managing payroll and benefits. At GoGlobal, we handle these items so our clients can focus on growing core business.
GoGlobal’s EOR solution has a proven track record of success in building fully compliant workforces in EU markets, offering expertise on complex regulatory compliance frameworks like the General Data Protection Regulation (GDPR). We take pride in having a global mindset but also dedicated teams of local experts on the ground in each of the markets we serve. Our dedicated team has niche expertise in the regulatory environment, staying up to date on all requirements. At the same time, they also know business customs and the local culture. These factors ensure a favorable experience for clients and client-employees.
If your company prides itself on offering a great employee experience in your home country, GoGlobal help you bring it to Latvia. Before we onboard the employee, GoGlobal’s team will work hands-on with the hired employee to go over the specifics of how the EOR arrangement will work. Even after we’ve onboarded the employee, the same dedicated team remains the point of contact for both the client and client-employee. We are always ready and available to answer questions that come up regarding payroll, taxation or benefits. When we work on behalf of our clients and client-employees, we aim to provide them with agility, efficiency and peace of mind.